Stephen Bainbridge's Journal of Law, Politics, and Culture

10/01/2012

Floating NAV for money funds floated again

It briefly looked like the idea of forcing money market mutual funds to let their net asset values float had died a well-deserved death. It is an absurd idea, that would devastate the industry and do serious harm to retail investors and savers (at a time when those folks have been getting bashed by the Federal Reserve's absurdly low interest rate policy). As I have observed previously:

Speaking personally, given the minuscule returns money market funds are paying these days, I probably would stop using them and just leave my rainy day savings/cash flow management funds in my checking account rather than trying to deal with headaches come tax time of having a constantly fluctuating NAV. Who wants to deal with paying taxes on, say, 10 cents worth of capital gains because you sold 1000 shares at $1.00 and had a basis in those shares of $0.9999? And what if you want to use actual cost basis instead of average cost basis? Maybe it'd be worth doing if you're a billion dollar institution, but my guess is that a floating NAV would drive retail investors out of the money market industry.

Unfortunately, as the WSJ reports today, this awful idea is once again rearing its ugly head:

SEC Commissioner Daniel Gallagher on Sunday said he believed talks could be restarted at the commission. Mr. Gallagher, who helped to torpedo SEC Chairman Mary Schapiro's plan, on Friday said he could support requiring money funds to abandon their stable $1 share price and allow it to float like other mutual funds. Ms. Schapiro said she could back issuing such a proposal as a stand-alone measure, though it isn't clear the developments could lead to a break in the impasse.

Why Commissioner Gallagher would back this boneheaded proposal as a stand alone "reform" befuddles yours truly. But, just in case, I'm going to open a savings account at my local bank as a receptacle for the money I currently have invested in money market funds. I feel sorry for the fund employees who will probably lose their jobs when this proposal--if adopted--smashes their industry, but maybe Obama can find them some of those green jobs he keeps talking about.

Comments

Floating NAV for money funds floated again

It briefly looked like the idea of forcing money market mutual funds to let their net asset values float had died a well-deserved death. It is an absurd idea, that would devastate the industry and do serious harm to retail investors and savers (at a time when those folks have been getting bashed by the Federal Reserve's absurdly low interest rate policy). As I have observed previously:

Speaking personally, given the minuscule returns money market funds are paying these days, I probably would stop using them and just leave my rainy day savings/cash flow management funds in my checking account rather than trying to deal with headaches come tax time of having a constantly fluctuating NAV. Who wants to deal with paying taxes on, say, 10 cents worth of capital gains because you sold 1000 shares at $1.00 and had a basis in those shares of $0.9999? And what if you want to use actual cost basis instead of average cost basis? Maybe it'd be worth doing if you're a billion dollar institution, but my guess is that a floating NAV would drive retail investors out of the money market industry.

Unfortunately, as the WSJ reports today, this awful idea is once again rearing its ugly head:

SEC Commissioner Daniel Gallagher on Sunday said he believed talks could be restarted at the commission. Mr. Gallagher, who helped to torpedo SEC Chairman Mary Schapiro's plan, on Friday said he could support requiring money funds to abandon their stable $1 share price and allow it to float like other mutual funds. Ms. Schapiro said she could back issuing such a proposal as a stand-alone measure, though it isn't clear the developments could lead to a break in the impasse.

Why Commissioner Gallagher would back this boneheaded proposal as a stand alone "reform" befuddles yours truly. But, just in case, I'm going to open a savings account at my local bank as a receptacle for the money I currently have invested in money market funds. I feel sorry for the fund employees who will probably lose their jobs when this proposal--if adopted--smashes their industry, but maybe Obama can find them some of those green jobs he keeps talking about.